Leucadia National Corp. (LUK) This report is strictly confidential. Long Leucadia National Corp.

. (LUK) Share Price LUK: $26.08 Market Cap: $9.5bn Enterprise Value: $7.2bn

April 17, 2014

Summary Thesis Leucadias asset mix has changed substantially over the last two years, largely as a result of the companys 2013 merger with the investment bank Jefferies. In the year since the deal closed, LUK shares have fallen roughly 10%, in part reflecting a substantial shareholder rotation. Today, the shares are trading at an attractive discount to intrinsic value, with a potential near-term catalyst that could highlight a valuable and overlooked asset. Upside Target: $38.00; Downside Risk: $22.00; Risk/Reward: 2.9 to 1 Background Following the recent DOE approval of Veresens Jordan Cove LNG export facility, Leucadias Oregon LNG is the next project in line for an approval decision. A friend who covers the energy industry was recently working on an analysis of the LNG export market when he approached me, asking if I knew Leucadia and had any thoughts about this part of their business. This reflects an interesting dynamic: investors who understand the LNG market dont know LUK, and (from what I can discern) investors who know LUK have overlooked a very important asset. Regulatory approval of Oregon LNG would position Leucadia to begin signing tolling contracts for the facility, framing its future value. I believe Oregon LNG has a discounted present value of $761mm to $1.4bn and that if approved, the facility could add an immediate 10-15% to LUKs enterprise value. This catalyst prompted a full valuation of Leucadia, which leads me to believe that it currently trades at a 47% discount to intrinsic value. Business Overview Leucadia is a multi-industry holding company that has experienced book value per share growth at an 18.8% CAGR from 1979 through 2012. LUKs share price compounded at a 19.3% CAGR over that timeframe vs. 11% for the S&P 500. This track record reflects the investing history of its long-time management duo of Joe Steinberg and Ian Cumming, but it is not the record of the current management team. Rich Handler and Brian Friedman took over management of Leucadia with the closing of the Jefferies acquisition in March of 2013. That said, Steinberg remains active in the business as Executive Chairman, and Steinberg and Cumming assembled the bulk of the current portfolio. Leucadias asset mix has changed considerably over the years, reflecting its nature as an investment holding company. Today, its largest exposures are to Jefferies (the investment bank), cash, tax assets and National Beef (a large beef processor). What is it worth? Given the evolving composition of LUKs asset mix, investors and management have generally benchmarked performance against book value, and 1x book value has served as home base

Leucadia National Corp. (LUK)

April 17, 2014

from a valuation perspective. However, there have been times when intrinsic value, book value and market value did not match up well. For example, in late 2007, LUK was being valued at 1.9x book value, when its underlying assets arguably merited for LUK to trade below book. o The shares were materially re-rated during late 2008, and the stock remains roughly 50% below its all-time high reached in May 2008. Today, LUK is being valued by the market at roughly 0.9x stated book. In my view, this valuation is too low given the assets and their underlying cash flows. While there are several components of LUK that are properly valued at book value, there are a significant number that are not. Here are the main segments of the business that arguably merit a premium to book value: Berkadia: A commercial mortgage banking JV with Berkshire Hathaway. Book value is $182.6mm. This business has distributed $229.7mm to Leucadia over the last four years. Leucadias share of Berkadia earnings in 2013 was $68mm ($85mm inclusive of a $16mm prior period adjustment). Garcadia: A car dealership JV; $120mm in book value. The business distributed $33mm in cash to Leucadia in 2013 ($24mm in calendar 2012). It should be worth more than 3.6x free cash flow, as publicly-traded auto dealers get mid-teens earnings multiples. Conwed Plastics: A niche specialty plastics manufacturer that has delivered a 20% ROIC on average since 1985. Conwed generated $15mm in pretax income last year and averaged $17.5 mm in EBITDA over the past four years, but is only on the books for $64mm. National Beef: This doesnt merit a huge premium to book, but an earnings-based approach does point to a modestly higher number. Stated book is $794mm. Buried in Note 19 of the 10K (titled Mezzanine Equity), Leucadia values the minority interest in National Beef using a DCF with a 12.23% discount rate. This implies a $907mm NPV for Leucadias 79% interest in the business, and equates to 4.8x the $240mm in pre-tax income the business has averaged over the past five years. In looking at National Beefs S1 from a 2010 IPO that never happened, from 07 to10 the company averaged more than $100mm per year in FCF, with a high of $223mm and a low of $(45)mm. Leucadia paid $867.9mm for its 79% stake in December 2011. Jefferies: This is the biggest piece, and the most complicated. It would make sense for Jefferies to be worth a lot more as part of Leucadia than as an independent enterprise for two key reasons: 1. Jefferies can utilize LUKs +$3bn in NOLs, and 2. Leucadia can utilize Jefferies +$2bn in excess cash. o Going forward, Jefferies should be able to generate approximately $450mm to $475mm in earnings, while using the NOL to offset taxes. At this rate, it would still take roughly a decade to fully exhaust the NOL balance. o If we value Jefferies earnings at 14x, it would be worth $6.3bn to 6.7bn. Since 2002, Jefferies had an average earnings multiple of 14.1x. A broad group of peers currently trades at 15x (SF, LAZ, RJF, MS, GS, JPM, GHL, BAC). o This valuation range implies a 1.19 to 1.26x book multiple on Jefferies current book value of $5.3bn. Jefferies was valued at an average 1.23x book value multiple in its last five years as a public company and a 2.02x book multiple during the five years before that. It seems odd that Jefferies would be worth 1.2x to 2x book as an independent entity, but only 1x book within LUK.

Leucadia National Corp. (LUK)

April 17, 2014

The peer group is currently at 1.45x book (excluding GHLs 5.65x). This approach effectively embeds the full NOL value into the Jefferies segment (and ultimately, it arrives at a result close to simply adding the NPV of the NOL to JEFs book value, which is how it appears in the appendix sum-of-the-parts).

With the market currently valuing all of Leucadia at roughly 1x book value, the earnings generated by these business segments are being assigned a very low implied multiple. If we strip out the components of the business that should be valued at book value and see what we are paying for the earnings of the rest of the business, the results highlight a potential undervaluation: Leucadia Implied Earnings Multiple Item Leucadia Market Cap Less Cash Net Cash Balance Less Public Securities: HRG, KCG, HOFD,FM CN, INTL Less Other Assets at Book/Cost: Premier Linkem Investment Partnerships Land leased to Garcadia Idaho Timber Cash Earnings and Divs Received Implied Multiple $ $ $ $ $ $ $ 250 Cash sale price 220 Cost basis of stock plus conv. note 91 HF and Private Equity stakes 77 Book Value (+ generated $7.1mm in rent '13) 68 Book Value 5,066 660 7.7x $ $ 1,354 5,772 Value (M) Notes $ $ $ 9,493 364mm shares 2,367 Reported value 7,126

This ascribes $5.1bn of value to a collection of businesses assembled by Steinberg and Cumming that are generating roughly $660mm in after-tax cash earnings (approximately an 8x multiple). Importantly, this does not ascribe any value to a collection of smaller/earlier-stage businesses including Leucadia Asset Management, Foursight Capital and Leucadias energy projects. One of these energy projects may actually have meaningful equity value. The Oregon LNG project in Warrenton, Oregon plans to source natural gas from North America and ship it to Asia. The facility is well located, offering attractive proximity to Asian customers and North American natural gas supply infrastructure. Leucadia is far down the very long path of regulatory approvals, and it may be the last project permitted before the DOE takes an unofficial pause in approving exports to non-FTA (free trade agreement) countries.

Leucadia National Corp. (LUK)

April 17, 2014

Applying conventional LNG project valuation metrics, with an assumed 50% equity participation and 60% debt financing, an undiscounted project value of $1.5 to $2.2bn should be achievable for LUKs assumed 50% stake. Discounting back to today at 10% to 15% points to an NPV range of $760mm to $1.4bn.

Oregon LNG Potential Value Low Total Project EBITDA Leucadia Share of Project Cost Debt Financing Percentage Debt Financing Equity Financing Assumed ownership percentage Leucadia's Share of EBITDA Assumed EBITDA Multiple Leucadia Share of Enterprise Value Less: Project Debt 2019 Equity Value Discount Rate Discounted Equity Value 728.8 2,915 60% 1,749 1,166 50% 364.4 9.0x 3,279.4 (1,749.0) 1,530.4 15% 760.9 Base 728.8 2,915 60% 1,749 1,166 50% 364.4 10.0x 3,643.8 (1,749.0) 1,894.8 10% 1,176.5 High 728.8 2,915 60% 1,749 1,166 50% 364.4 11.0x 4,008.1 (1,749.0) 2,259.1 10% 1,402.7

This type of valuation is consistent with how the market is valuing similar projects at this stage of development (i.e. guidance from oil companies building similar facilities). o Veresens Jordan Cove project, also in Oregon, was the most recent LNG export project granted DOE approval. VSN shares moved up materially during February in anticipation of an approval, and sell-side price targets increased roughly $2 per share on average in reaction to the approval. These higher targets imply roughly $400mm in value for achieving the DOE approval milestone (for a project that is reasonably comparable to LUKs). As an example, one sell-side analyst sees the Jordan Cove project as having $1.2bn in total value to Veresen, and he includes $700mm of this value in his current valuation of Veresen. The Oregon LNG project is more cost-competitive than the Jordan Cove project, as it requires a significantly shorter feeder pipeline (85 miles vs. 230 miles for Jordan Cove). Oregon LNGs project costs are estimated at $7.88 mmcf/d vs. $8.50 mmcf/d for Jordan Coves. o Energy analysts I have spoken with believe that if Oregon LNG was part of a standalone energy business, investors would give the project a present value of around $500mm to $900mm upon achieving DOE approval (roughly 25% to 50% of total project value, and an incremental $1.35 to $2.50 per LUK share). The market does not appear to assign any value to this project for LUK.

Leucadia National Corp. (LUK) o

April 17, 2014

The estimates above assume LUK sells down 50% of the equity in Oregon LNG after the approval is granted. Asian buyers such as Mitsubishi or Mitsui typically buy equity stakes to co-invest in project development in conjunction with signing offtake agreements, wherein they assume all commodity price risk. LUK have confirmed that they would sell down part of their stake, but the 50% number is an assumption based on previously approved projects. LUK could vary that percentage (which may have large implications for their ultimate share of equity value). An approval decision for Oregon LNG could come as early as the end of April.

Why is it undervalued? JEF merger The Jefferies merger was complex in that it represented the culmination of a decades-long relationship between the firms, and the deal rationale was not entirely economic (it was also Leucadia managements answer to the succession question). With the closing of the merger, Rich Handler and Brian Friedman of Jefferies became CEO and President, respectively, of Leucadia. Joe Steinberg became the Executive Chairman and Ian Cumming retired. o While Handler and Friedman have an excellent track record of creating value for shareholders (JEF returned 23% annualized during Handlers time as CEO, 1/2001-3/2013-- S&P 500 returned 3% over that timeframe), LUK is a stock that many investors owned because of Cumming and Steinberg. Since the announcement of the merger, there has been significant shareholder turnover, with more than 50% of the old Jefferies shareholders no longer owning shares and 15% of LUKs pre-deal holders having exited the stock. This technical pressure has likely impacted the shares, which have stagnated in a market that has otherwise been kind to shares of holding companies and investment banks. o The rationale for the deal is perhaps more value-accretive than shareholders give it credit for. Steinberg and Cumming crafted an innovative solution to a tricky succession question, while at the same time increasing the present value of their NOLs and gaining access to a significant amount of cash to deploy in the future. In the words of Cumming and Steinberg, Leucadia shareholders picked up a great asset at a fortuitous time for both companies and we solved our succession challenge. Combined, we have a world-class investment banking firm, with a merchant banking focus, tax efficiency and a pile of cash. Underfollowed Leucadia is not a stock that is easily categorized, and for large institutions on both the buy-side and the sell-side, it is unlikely to fall directly into anyones sector. No publishing analysts follow the stock, and Bloomberg lists its comps as a group of lumber companies. When the business changes, as it has done many times over the years, there is no one to really call out the changes to the investment community. Anchored to book value Given Leucadias history of opportunistically trading assets, book value has been a logical marker for valuation. However, it is not always the right metric. The current composition of the holding company is heavily weighted towards businesses that are likely to remain part of LUK for the foreseeable future and appear to be worth more than their stated balance sheet values. The market is currently valuing all of Leucadia at roughly book value, which means that these operating businesses can be bought for less than 8x cash earnings/dividend distributions.

Leucadia National Corp. (LUK)

April 17, 2014

Hidden Asset Leucadia has long had a group of energy projects under its umbrella that have gone nowhere, and investors have been conditioned to assign no value to them. However, one of these projects is on the cusp of a meaningful development milestone. Oregon LNG has real value, and were it part of a standalone energy business, it would likely be recognized by the market for its material positive value.

Key Risks Dead money The shares may continue to stagnate in the absence of a major monetization or other catalyst. Although an approval for Oregon LNG approval could serve as a trigger for investors to re-examine Leucadias underlying value, it may remain under-the-radar and undervalued. There may also not be an approval at all. o It may also take a while for investors to warm up to the new management team, and it may take a long time for the new management team to utilize its large cash pile. Economically sensitive Leucadia has a long history of investing in cyclical and economically sensitive industries. In their view, if one can weather the cycles, these businesses will do (and have done) very well. Effectively, LUK is built to capture value from investment opportunities where the market undervalues a business because of its volatility. As Steinberg has said, LUK is all about avoiding margin calls to benefit from the long-term rewards of owning cyclical assets. Poor Capital Allocation Leucadia has significant excess cash and a business model predicated on intelligent capital allocation. There is always a risk that managers deploy their cash into investments that are value-destroying. (See appendix)

Leucadia National Corp. (LUK) Appendix: Leucadia Upside Potential Item Jefferies Deferred Tax Assets Net Cash Balance National Beef Berkadia Harbinger equity stake HomeFed Garcadia Premier Knight Capital equity stake Linkem Conwed Plastics First Quantum Investment Partnerships Land leased to Garcadia Idaho Timber INTL FC Stone Leucadia Asset Mgmt Foursight Capital Lake Charles Total ex. Catalyst + Oregon LNG Total Shares Outstanding NAV/sh. Today's price (4/17/2014) Upside

April 17, 2014

Value (M) $ 4,500 $ 1,800 $ 2,367 $ 900 $ 675 $ 484 $ 471 $ 300 $ 250 $ 218 $ 220 $ 150 $ 156 $ 91 $ 77 $ 68 $ 16 $ $ $ $ 12,743 $ 1,176 $ 13,920 $ $ 364 38.23 26.08 47% LUK

Notes 10x pre-tax earnings (0.85x book value) Book Value; >$3bn gross Reported value Company-reported DCF valuation 10x cash earnings Publicly traded equity value Publicly traded equity value 10x cash dividends Cash price paid Publicly traded equity value Cost basis of stock plus conv. note 10x operating cash flow Publicly traded equity value HF and Private Equity stakes Book Value (+$7.1mm rent generation in '13) Book Value Publicly traded equity value

$35.00 50% of PV base case estimated equity value